Dollar hits six-year peak vs yen, stocks rally

NEW YORK (Reuters) - Investors focused on an increase in the Federal Reserve’s interest rate forecast boosted the dollar to a more than six-year peak against the yen, while global equity markets rallied and the Dow and S&P 500 set fresh record highs on the Fed’s unchanged timeline for eventual rate hikes.

A man walks past the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth

Leading British shares rose as investors bet Scotland would remain in the United Kingdom after Thursday’s referendum.

A Thomson Reuters basket of 12 stocks listed on Britain's FTSE 350 index .FTLC, based in Scotland, has slowly risen over the last two weeks. (link.reuters.com/wej72w)

The dollar index .DXY, a gauge of the greenback’s value against six currencies, hit a high last seen more than four years ago, lifted by the Federal Reserve’s forecasts for short-term rates on Wednesday that were higher than those projected in June.

Higher rates make the dollar more attractive, but at the end of a two-day policy-setting meeting on Wednesday the Fed also renewed a pledge to keep longer rates low for a unspecified “considerable time.”

The dollar index and the euro retreated after the British pound climbed as much as 0.83 percent to $1.6408 versus the dollar on anticipation Scotland would remain in the UK. The pound last traded up 0.6 percent at $1.6370.

“The dollar will be in a consolidation phase in the short term after yesterday’s sharp gains,” said Greg Moore, senior currency strategist at RBC Capital Markets in Toronto.

The dollar rose as high as 108.96, the strongest since August 2008, and last traded at 108.76, up 0.36 percent.

The euro rebounded, rising 0.4 percent to $1.2917.

Wall Street rallied, with both the benchmark S&P 500 and Dow indexes setting new intraday highs.

The Dow Jones industrial average .DJI closed up 109.14 points, or 0.64 percent, to 17,265.99. The S&P 500 .SPX gained 9.79 points, or 0.49 percent, to 2,011.36 and the Nasdaq Composite .IXIC climbed 31.24 points, or 0.68 percent, to 4,593.43.

A strong dollar makes dollar-priced commodities such as oil more expensive for buyers using other currencies and tends to weigh on oil prices.

Brent LCOc1 settled down $1.27 at $97.70 a barrel, while U.S. crude Clc1 fell $1.35 to settle at $93.07 a day after dropping on government data that showed U.S. crude inventories rose 3.7 million barrels last week. [EIA/S]